A product financing arrangement is a transaction in which an enterprise sells and agrees to repurchase inventory with the repurchase price equal to the original sale price plus carrying and financing costs, or other similar transactions.
How do you account for a finance arrangement?
The accounting for a product financing arrangement is to treat it as a borrowing arrangement and not a sale transaction. Thus, the “seller” continues to report its ownership of the asset “sold,” as well as a liability for its repurchase obligation.
How to Account for a financing arrangement?
When do you need a product financing arrangement?
A product financing arrangement is more likely to exist when there is a resale price guarantee, whereby the original seller agrees to pay any shortfall between the price at which it sold to the reseller and the price at which the reseller sold to a third party.
How does a third party financing arrangement work?
If a third party has committed to repurchase the product, the seller records the repurchase obligation as soon as the product is purchased by the third party. In addition, the seller accrues any financing and holding costs incurred by the buyer. The following example illustrates the concept.
When is a transaction likely to be a financing arrangement?
A transaction is likely to be a financing arrangement in any of the following situations: The seller agrees to repurchase the item it has just sold, or an essentially identical unit. The seller commits to having a third party purchase the item, and then agrees to acquire the item from the third party.
Which is issued in question 5 in a lease agreement?
ADRs are issued in Question 5. Public deposits are the deposits that are raised directly from Question 6. Under the lease agreement, the lessee gets the right to Question 7. Debentures represent Question 8. Under the factoring arrangement, the factor Question 9. The maturity period of a commercial paper usually ranges from Question 10.